How To Build A Flexible Whole Life Insurance Policy

I'd like to transition a little bit into another topic as it relates to whole life insurance policy design and flexibility for the folks listening that are like, okay, I've been on this journey learning about infinite banking. That's the most say popular term. And I think that's what catches a lot of people's attention. This idea that an everyday person of any age group, any people group could essentially become their own bank, establish their own tax free family banking system. These wonderful terms that I think really resonate with folks and then they go in this journey of YouTube, social media, reading books, what would the Rockefellers do? The Andass set, Nelson Nash, become your own banker. That's one of the classics and a few others out there. Not a whole lot of books. Again, we're talking a handful of books on this very topic. Like a handful. So there's only so many books you can read and there's only so many people you can learn from in this particular space. And I'd like for you now that you've been doing this since 2013. So we've got 13, 15 years in the books, being in the industry.

Right? Yeah, the niche. Yeah, I mean 2011 started, but yeah, as far as the niche, like whole life cash value, over a decade. Yeah, well over, yeah, yeah.

So in that time, what are some key foundational, you know, principles you've been able to see as it relates to the insurance company that we choose, policy design that we, that you, you know, typically or, or form that you work with and then as it relates to flexibility, kind of explaining what that is, what flexibility means and how people can use that to their advantage as it relates to saving money in a whole life and adding funds, contributing. Because Unlike a Roth IRA or unlike an HSA or a traditional IRA 401k tsp, there's all these caps that exist on what you can fund, how much you can fund per year, and if you don't fund that that year, you can't make up for it next year. And there's a lot of limitations. But when it comes to whole life, there's virtually no cap. Yeah, we get to set that ourselves. We have to customize that with the agent.

Yes, yeah, definitely. So I can go through that. Sure. So where I usually like to start, if someone's interested in a whole life insurance policy and we're looking to set it up for cash value, I'll go through this slow and if you have questions, feel free to stop me in my tracks is the first thing I like to do is educate the client on exactly how to maximize the cash value. And what I like to do is follow the money. Meaning the model that I have seen work firsthand for corporations and wealthy families and specifically where they do not regret putting money into the product is usually with a whole life insurance policy that is positioned with One of the four major mutual companies who are MassMutual Guardian, New York Life and Northwestern Mutual. And it is designed with the lowest base premium possible. That specific design for a very cash value focused buyer has produced the highest cash value. And what I mean when I say that is based on actual numbers, not just illustrations. So where I've seen people express buyer's remorse quite a bit is when they get a policy with a different company that we have not been able to attain any proof of performance. They look at the illustration, it projects good looking numbers but then in reality it under delivered. I'm not saying all other companies aside from the four major mutuals do that but we've received consistent proof of performance from those major mutuals. Corporations use them. It's who I used, who the executive benefits firm used back when I worked there. It's still who we use today. The bank we work with, their policies are with MassMutual Guardian and New York Life for the bank owned life insurance policy purchases because of that proof of performance, not just good looking numbers on paper. So if there's a model that I know works, I have a very hard time recommending someone go with a different company where I just have not received any proof of performance yet. It's quite simple, like I need the proof. Once I get it I'm more comfortable using other companies and we always, we actively try and get it from companies and other agents. But the model typically I like starting with those companies because I don't have to worry about a client saying hey this is just under delivering every year or which I've seen happen a lot with whole Life. It happens a lot in the industry in general. That makes it very easy for the critics of whole life insurance to say yeah you're going to see great, great looking numbers on paper but it's just going to underdeliver like it makes it a punching bag. So you've got to do it right in that respect. I know the model that has the greatest likelihood of working so I use that. Any questions on that or making sense?

We're good, thank you.

Cool. Yeah, definitely then with the policy design piece. So what I don't like about whole life insurance just on the surface is that it can be very very boring. Most People hear the word whole life insurance, they think I'm going to have this bill. I pay the same amount every month, every year it's the same thing. If I miss a premium payment, the policy will lag. What if I can't pay it? All that stuff. So how you can prevent that from occurring is setting up a policy to say, as you said, be flexible. So with a life insurance policy, if you're going to pay a dollar into it, you, the policyholder can choose where that money goes. It can go toward your base premium or toward your paid up additions rider. The short version of that is PUA rider base premium dollars 10 typically build zero in cash value in the first year, sometimes the first and second year depending on the company and product. Whereas PUA dollars show up in cash value, it's usually between 95% and 98% of the PUA deposit I make shows up in cash value immediately begins to compound. That's what people do when they're interested in cash value. So where the flexibility comes into play, it does depend on the company as all companies have different rules. But generally what you can do, instead of a policy where I'm only committed to the base premium and then PUAs can be adjusted or added at leisure. So for example, if someone says to me, hey, I want a policy where I can pay up to $100,000 per year, what I'll do is say, alright. If we look at Guardian Life Insurance Co. For example, I know that we can pay 10 times whatever our base premium is in PUAs per year. Which means if $100,000 is your desired maximum, we'll set the minimum as low as we can, which will be about $10,000. And that would include the term insurance rider. It would be a 10,000 or $11,000 net. But we're committed to $10,000. We're billed for $10,000 every year. We could even break that up over 12 months which is $800 and change per month. But then their target was $100,000 per year. That with Guardian specifically can be added at leisure. You could literally go on your mobile app and just ach transfer money from your bank account to your Guardian policy. Boom, throw it in. There's no limit to the number of PUA payments over the course of the year. We just set that maximum, which is referred to as your MEC limit at $100,000 or higher if they're going to fund for a long time. But Guardian lets you commit to a minimum amount and add more money at discretion at leisure. Not all companies allow you to do it at leisure, but that's what we would do. If somebody's paying in $100,000 per year, we'd set the minimum at 10. If they say the maximum I want to pay in is 10,000 per year, we would set the minimum at about $1,000 per year. So now they're committed to that with the ability to add the other $9,000 in PUAs and sometimes the minimum ends up being a little bit higher than 10%. Maybe it's 10.5% or 11% with a term rider and such. But the point is we want to reduce the obligation as low so it never feels like a burden to them and they can add extra money at their discretion. Now you've taken that old boring bill out of the equation and made it a flexible savings asset. And the money that they add at leisure, they see that show up in cash value now and they like it. And also enhances the long term growth, which makes it even better.

Right? Yeah, right. So to get even more technical, and this is for the agents watching and those that are aspiring to become agents and they're, you know, learning about the different companies. So we're, you know, we're talking about Guardian Life, which is one of the top four companies that you like to use and have the actual performance and results. And it's a company I personally have a policy with and have been using for years with, with my clients in that first year when funding a policy. In that example, we can even use the smaller example, 10,000 a year with a base of just a thousand bucks. And once it's all said and done, when you add the term and the PUA cost in there, maybe it's a few hundred dollars more or a thousand dollars more if that on top of the thousand that you're minimally required to do in order to max fund up to 10. So you set the minimum requirements so low and then you've got all this space to grow. With the policy now specifically with Guardian, can you talk a little bit about in the first year and also over the years of the policy when it comes to paying 10,000 a year, like can I, if I go less, what happens if I don't fund, you know, a certain amount over a certain period of time, how flexible are we talking? You know, what limitations exist?

Yeah, good question. So I can break down the nuances and we can focus on Guardian. If you want to talk about MAS afterwards too, we can do that too as they can be even more technical. But we'll stick with Guardian. So Guardian as a company, PUAS can be added 100% at your leisure. We already talked about that. That means you log on your online account and send a check and just throw PUAs in whenever you want, which is nice. Now, as a company, in the first policy year, they will allow a policyholder to pay up to 50 times the base premium in a PUA deposit. That can be upfront or over the course of the year. They'll allow that to be illustrated. That specifically accommodates clients who are starting with a large lump sum. Why Guardian rolled that out? They rolled that out in late 2021, 2022, when there's a big industry change. Really, really. To replace a single premium life insurance policy. They used to have a pure single premium life. That's a one time MEC policy. This replaces it if you're not adding a term rider. The thing is, what you can do if you're savvy is you can add a term insurance rider to raise your MEC limit. Add a lump sum could be as high as 50x, but I can get a big deposit into the policy. Have a very, very rich first year cash value. I usually break even between two and four years. A lot of times when I start with a big dump in like that.

Yeah.

But yeah, I can go up to 50 times the base premium in the first year. They allow that with all policies regardless over the first 12 months during the first year. So it can be multiple or one. They allow that and we can illustrate that too, which is nice. So in the first year up to 50x, Guardian will allow that whether I have a term insurance rider attached or not. The thing is, if I don't have a term insurance rider attached, while Guardian allows that in terms of a company rule, the IRS rules you'll trigger a MEC if you don't have a term insurance rider attached. So to prevent the IRS mec, we'll attach a term insurance rider. And now all of a sudden you can have it classified as life insurance and be able to access it tax free. Like that's what people are into. That's the first year. From the second year to the 10th year, if you just go with a standard whole life insurance policy, meaning you don't add any term insurance riders, you'll be able to pay a maximum of three times the base premium in PUAs per year without any medical underwriting. If you want to go higher, it will require medical underwriting. From the 11th year onward, the maximum you can pay in PUAS is one times the base premium without any underwriting. You want to add more, they'll say you'll have to go through underwriting. That's the standard, which we almost never do. So how you beef up the limits is you can attach a term insurance rider. The one you want is called a one year term insurance rider. It's exactly what we did and still do for corporations. A one year term rider, when that's attached to a policy, what that allows you to do is now go up to 10x the base premium beginning year two, because remember the first year you go up to 50x 50x. There we go. So with the one year term rider, you can now illustrate up to 10x the base premium per year. And you can do that as long as that one year term rider is still attached once it expires. Because how the one year term rider works is as you pump money into the policy, specifically PUAs, your whole life death benefit is going to grow along with your cash value. And as that grows, your term comes down and eventually goes down to zero. So whether it naturally goes down to zero or if you chop the term rider off, as agents can manually chop it off, usually after the first seven years to prevent a MEC once it's gone, then you go back to the standard PUA limit that Guardian offers, which is the three times through the 10th year and 1x 11th year onward. But as long as it's attached, an agent can illustrate and a client can pay 10x the base premium per year. Questions thus far are making sense.

So in that example, I'm funding a policy where I'm creating the ability for me to save 10,000 a year. I've shrunk the base premium minimum requirements as low as I possibly can go roughly 10% of my funding number, I can do up to 50x the base in the first year. Years 2 to 10, I can do 10x the base premium or basically however long I have that one year term rider on. So if I'm only looking to fund the policy for 10 years, then I'm only going to have the rider on for say 10 years. But if I want to go longer, then we'll probably do some changes to allow for that. So that's all clear. And then the part about once the rider is off, if the term rider came off before year 10, you can do 3, 3x the base premium until year 10 with no underwriting. And then after year 10 years 11 and onward, it's 1x the base premium. So to give a real life example, I have A policy guardian where I'm funding it, it was designed to be max funded for seven years. So after the seventh year in this example, my OIT rider would drop off at this point and then I can pay in up to 3x the base premium from years 8, 9 and 10, and then years 11 onward would be 1x the base premium. But if I keep that OYT rider on after year 7, which I'm assuming we can, then I can still do 10x, correct?

Yep, correct.

Okay. Yeah, gotcha.

Keep 10xing it another thing on that. So with the one year term rider, let's say you have a policy go back to the 1k minimum, 10k max. To oversimplify this, let's say the MEC limit is 10k per year, right. So you set it up where you can fund up to that MEC limit every year. Let's assume you don't put in 10k every year. Let's assume over 10 years you pay in $5,000 per year, which would be a total of $50,000. By the 10th year you could have paid in $100,000 if you would have maxed it out every year. Again, I'm oversimplifying here. The MEC limit works differently. But just stay with me. Yeah, cool.

For all the agents we're overwhelming.

Exactly. So by the 10th year Guardian will allow this again, if we have the one year term rider still attached and enough terms still remaining, is if I could have paid $100,000 by the 10th year and I've only paid in $50,000, I can make a big catch up payment which is just a big PUA deposit, but that exceeds 10x and we've had clients do that for years where they make large catch up contributions because they didn't max fund the policy. Every year they sold the piece of property, they come into a windfall, they say, hey, I've got this extra money, I'm thinking about getting a new policy. I'm like, hold up before you do that on your existing policy here, that's six years old, you can actually throw it in here, you've got some of that unused space and you'll see a positive return immediately. Whereas if you start a new policy, you've got to go through the initial expenses again. And they're like, oh, well that's fantastic. I'm just going to do that. Yeah. Because it's in your best. I would do it too. It's like in their best interest to maximize the value so you can make up for lost time with those catch up contributions. Guardian allows that. Massmutual also allows that. The big key on that, to avoid the hassle of having to go through underwriting or the company just telling you no, is you do have to have that one year term ride that's not attached. You're not going to be able to do that or it's just going to be next to impossible.